<strong>Grass Roots Banking Among Muslims</strong>

Personal micro-lending is a tradition widely practiced in many countries. The practice has a place in Islam and among Muslims, who view this method of saving and borrowing as an alternative to the conditions set by banks, which can at times contradict the teachings of Islam. Muslim immigrants are finding many other reasons to revive this practice in Minnesota.

It's not an operation run by a bank or financial institution. Instead, a pair or a group of individuals come together in a money saving and borrowing venture to finance large purchases or provide emergency relief.

Halimo Abdi, her cousin Dahabo Osman, her sister Fadumo Abdi, and friend Subaan Ahmed recently gathered at Fadumo's store in Burnsville to discuss starting a micro-lending group. The youngest is interested in financing school and the oldest wants to save money for a down payment on a house. They are at dramatically different places in life and have different interests, but the four came together to help each other achieve their goals.

Fadumo said, back in her home country of Somalia, she disliked the idea of micro-lending. It was a sign of extreme poverty, she added, and a process only practiced by more poor, rural residents and something most people frowned on. But today in Minnesota, the conditions many Somalis face have pushed them to utilize the practice.

Halimo said she wants to join a micro-lending group to save money for Hajj, the Islamic pilgrimage to Mecca. She offered to be the last person to receive payment, jokingly adding that the later she gets paid, the less likely she is to spend her share.

Ahmed Hirsi, a personal banker who also participates in a micro-lending program with his friends, described this paperless process as a contract of trust – a system, he said, that is quite different from how most banks operate.

Mostly it's people who trust each other because this is based on trust since there is no insurance, anything, or any paperwork, Hirsi said. It's close family, friends, it's people who know each other.

Question: Who usually participates? Is it family, is it friends and family, is it people that generally just trust one another?

The first thing you want to do is find a group of people who are able to contribute this money, he said.

The amount of saving is flexible.

It depends on how much you can save at the end of the day, Hirsi said. If you can save $100, then you have to find a group of people that fit in that category and can save $100. If you can save $500, then you find that. But the way it works is that you you bring together a group of people, for instance 5 people and then if you want to do it monthly, if you want to do it biweekly, or monthly, you can do that. For example, let's use weekly, each week you're obligated to pay $100. Then we'll select one of the members to be the first in order, and whenever its your turn you'll get that money. Keep in mind that even if you're the first person to get paid, you're obligated to continuing paying until the last person gets paid.

Hirsi said many Somalis, who are typically Muslim, prefer this method because it honors the tenets of Islam, which forbids usury.

There's no interest in ayuuto or hakbat, Hirsi said. That's the number reason why the Somali community does this.

For many new Muslim immigrants, the benefits also include simplicity.

Primarily it's convenience, especially in the elder communities since they don't have the ability to go to the bank, make deposits, and they don't know how the system works, Hirsi said. It's much easier for them to do this type of transaction.

Falastin Hassan, a young Muslim, said her micro-lending circle helped her save more money than she otherwise would by putting money into her bank account. She said she is less likely to spend because the funds went to a person instead of an account accessible to her.

The reason I decided that I wanted to be involved in it was because I thought I could use the little extra money for savings and stuff, Hassan said. So it was money I was putting away that I wasn't thinking about it, and later it was coming back to me and I could use it for some good stuff.

Six months after participating in a micro-lending circle, she received a large check that she used toward buying her first car.

A micro-lending circle is a viable option for some, especially for people interested in purchasing big items but do not qualify for a loan or are trying to avoid paying interest. But despite the advantages, there are risks especially since there is no legally binding agreement or any written record of these financial transactions. Hirsi said there are some important considerations a person should make before using this process.

You don't want someone to get paid and then disappear, he said. So you have to consider that you can trace this person whether it's family members or immediate friends.

Question: Do you know of any instances where this has happened where someone was the first to get paid and then they bailed?

To be honest with you, I have never heard of this... that's rare, that never usually happens, he said. Again you have to consider the people who usually do this families, close friends, people that know each other so well.

For Muslims young and old, those with impeccable credit scores and those with no credit history, informal financial transactions continue to have a place in Minnesota.

by Ramla Bile